Monday, October 11, 2010

Reaping What You Sow

The economic policies that the Obama Administration has implemented through legislation, and countenanced by appointing Timothy "Weak Dollar" Geithner to the position of Treasury Secretary, and re-appointing as Chairman of the Federal Reserve Ben "I'm printing Money til it hurts" Bernanke are having the opposite effectof what this administration and all of their reputable economists had assured would now be happening , and it's not good. What is true in farming is also true ineconomics: You reap what you sow! When you plant lima beans all the backyard town-halls and campus rallies in the world will not produce a crop of beautiful beefsteak tomatoes. You can blame it on the weather and the soil, you can even blame the Republicans, but come harvest time you are going to be stuck eating lima beans and your words. The stagnant economy that we endure today is what you reap when you have sown an economic policy mix that gets it totally wrong.

What makes this all the more frustrating to people who understand economics (I'm talking about the millions of ordinary Americans giving this Administration’s current policies the thumbs down, not the so-called experts that are now running from Washington as though they were mice being chased down by the farmer's wife,) is that the answer to our current economic malaise is so simple. It boils down to getting only two things kind of right. Not millions of thing perfectly right. Two things kind of right! Is that too much to ask for? It's not, as we are lead to believe, a very complex formula. It doesn't involve having the best and brightest economic minds surrounding the President carefully crafting complicated plans to be painstakingly executed and monitored day and night by the government's financial Czars. It involves getting two things kind of right.

My friend, Nathan Lewis, who understands better than most how tax and monetary policy effect economic output puts it this way: The two and only two things you need for a vibrant, no, booming economy, are low tax rates and stable money. Get those two things right and you are off to the economic races. Get them wrong and you are, well, you are right where we are today, scrapping along the bottom not quite falling behind but certainly not moving ahead.

Many will argue that a third component rolling back unnecessary regulations is required and while that may be true, in reality regulations are just a subset of the low tax proposition. After all, regulations are just additional costs imposed on business by various governments. In other words, they are taxes. Low tax rates will once again realign the incentive structure that has been undermined by the current policies of redistribution, and once again reward hard work.

If a low tax rate is the Burpees Big Boy seed of economic growth, stable money is the spring rain that makes the combination bear fruit. Economies that debase their currency find that attracting capital becomes increasingly difficult. The Plummeting dollar tells investors the game is rigged. Even if you can achieve thenominal returns you seek, at the end of the day you’ll end up a loser, as the falling value of the dollar turns your real returns negative. Without capital, you are just a man leaning on a shovel in the field wishing you could persuade the folks at the bank that the tractor that would make your business boom really is a capital idea!